Certified Dilapidations Cost as the Landlord’s Only Remedy Quoad Condition

Case: HFD Glasgow 3 Limited v Student Loans Company Limited
Citation: [2025] CSOH 101 (Outer House, Court of Session)
Judge: Lord Lake
Date: 4 November 2025

Introduction

This commercial lease dispute from the Scottish Court of Session addresses a recurring end-of-term problem in full repairing and insuring (FRI) leases: how to measure and recover dilapidations when the tenant departs and the premises are not in the condition the lease required. The pursuer (landlord), HFD Glasgow 3 Limited, owned office premises at Bothwell Street, Glasgow. The defender (tenant), the Student Loans Company Limited, occupied until December 2023. A suite of repairing and maintenance provisions applied during the term. Upon expiry, the parties clashed over what remedies the landlord could pursue for alleged failures to comply.

The focal point is paragraph 12 of Part 4 of the Schedule to the lease, an “only remedy” and certification clause. It provides that if, on expiry, the premises are not in a state “consistent with a diligent performance by the Tenant of the obligations contained in this Lease,” then—subject to a redevelopment carve-out—the landlord’s only remedy is payment by the tenant of a sum certified by the landlord’s surveyors (acting reasonably), or by an appointed building surveyor in the event of dispute. Payment within 14 days is to be accepted in full satisfaction of the tenant’s liability “quoad the work referred to in this proviso.”

Two other clauses play a supporting role. Clause 16 provided for expert determination by a building surveyor but was disapplied by agreement (the court was not shown the correspondence). Clause 17 is a redevelopment exception: where there is to be comprehensive redevelopment, the paragraph 12 payment mechanism is not enforceable. The practical impact of those clauses bears on the construction of paragraph 12.

The landlord’s summons advanced six conclusions. The first, for £9,143,010.39, was presented at debate as implement of the paragraph 12 payment obligation (though the summons itself had framed all conclusions as damages). The remaining conclusions sought sums said to represent, broadly, consequential losses stemming from the premises allegedly being unlettable because of dilapidations during a transitional period (loss of rent, insurance, rates, service charge) and legal fees under a separate indemnity (Clause 32).

The core interpretive issue: does paragraph 12 impose an exclusive, aggregate monetary remedy for all breaches relating to the condition of the premises, thereby displacing other heads of damages grounded in those breaches, or does it sit alongside and leave intact claims for accrued liabilities under other lease provisions?

Summary of the Judgment

Lord Lake held that paragraph 12 creates the landlord’s only remedy “quoad the work,” meaning that, at lease end, all breaches relating to the condition of the premises are aggregated into a single obligation to pay the certified cost of the remedial works required to restore the premises to the condition consistent with diligent performance of the tenant’s lease obligations. In other words, the clause does not extinguish the underlying breaches; it stipulates a single, agreed measure and mechanism for the tenant’s liability for those breaches.

Crucially, the “only remedy” is confined to liabilities that concern the condition of the premises—the “work referred to in the proviso.” Obligations that do not relate to condition (for example, a separate contractual indemnity in Clause 32 for costs of enforcement) are unaffected and remain enforceable according to their terms.

Clause 17 (the redevelopment carve-out) confirms that parties did not intend landlords to circumvent the paragraph 12 mechanism by re-pleading individual breaches when redevelopment is planned; to hold otherwise would render Clause 17 pointless.

On procedure and pleadings, Lord Lake observed that, if the first conclusion were truly a claim for damages, it would be irrelevant; framed as implement of a contractual payment obligation under paragraph 12, it “may be relevant.” Given the way the case had been pled and argued, the court put the case out By Order to address how to give the decision practical effect.

Detailed Analysis

Precedents and Authorities Cited

Although the parties agreed the interpretive principles and Lord Lake did not analyse the authorities in detail, the judgment sits squarely within the modern approach to contractual construction reflected in:

• Rainy Sky SA v Kookmin Bank [2011] UKSC 50 and Wood v Capita Insurance Services Ltd [2017] UKSC 24: interpretation is unitary and iterative, seeking the objective meaning of the language in its documentary, factual and commercial context.
• Arnold v Britton [2015] UKSC 36: primacy of the contractual language; courts should resist rewriting bargains to assist a party who made a bad deal.
• @SIPP Pension Trustees v Insight Travel Services Ltd [2015] CSIH 91; Ashtead Plant Hire Co Ltd v Granton Central Developments Ltd [2020] CSIH 2; Network Rail Infrastructure Ltd v Fern Trustee 1 Ltd [2022] CSIH 32; Paterson v Angelline (Scotland) Ltd [2022] CSIH 33; Lagan Construction Group Ltd v Scot Roads Partnership Project Ltd [2023] CSIH 28; FES Limited v HFD Construction Group Ltd [2024] CSIH 37; and Glenfiddich Wind Ltd v Dorenell Windfarm Ltd [2025] CSOH 62: Scottish articulations of the same principles—focus on the text, read as a whole, with business common sense as a cross-check where there is ambiguity.
• PIK Facilities Ltd v Shell UK Ltd 2005 SCLR 958: a practical backdrop specific to dilapidations—specific implement of works is generally unavailable after lease expiry, so parties often adopt monetary and certification mechanisms to achieve finality.

These authorities collectively justify the judgment’s emphasis on the ordinary meaning of “only remedy,” the bounded scope of that exclusivity (“quoad the work”), and the commercial logic of consolidating condition-related breaches into a single, certified monetary sum at lease end.

Legal Reasoning

Lord Lake’s reasoning proceeds in four key steps.

1. Textual focus: what does “only remedy” attach to?
   The clause makes the certified sum the landlord’s “only remedy,” but the operative qualification—“quoad the work referred to in this proviso”—is pivotal. The “work” is expressly defined as “such work as is required to put the Premises in such state and condition as shall in all respects be consistent with a diligent performance by the Tenant of the obligations contained in this Lease.” On a natural reading, this anchors the exclusivity to liabilities whose subject matter is the condition of the premises at the end of the lease. It is not a blanket release or waiver of all other lease liabilities; it is a targeted exclusive remedy for the universe of breaches bearing upon condition.

2. Characterisation: not an exclusion clause, but an agreed measure of loss and mechanism.
   The clause does not extinguish liability; instead, it aggregates and monetises it. As the court put it, paragraph 12 “does not make the earlier breaches disappear, it provides a single aggregate remedy for them.” The accepted measure of dilapidations loss is often the reasonable cost of remedial works. Here, the parties contractually fix that measure and its ascertainment via certification. This has two consequences:

   • For condition-related breaches, the landlord’s recovery is channelled into the certified cost of the works—no parallel or additional damages claims predicated on the same breaches (e.g., separate damages claims for the underlying repairs obligations) can be pursued.
   • The certificate-based mechanism is the supply-side answer to PIK Facilities: when you cannot compel works after expiry, monetising the breach via a defined certification process provides finality and predictability.

3. Contextual support from Clause 17 (redevelopment carve-out).
   If, on a comprehensive redevelopment, paragraph 12’s certification mechanism is disapplied, but landlords could still sue on each individual repairing obligation to recover equivalent sums, the Clause 17 carve-out would be rendered nugatory. The court rejected that outcome. Clause 17 therefore confirms that the certification mechanism is intended to be the exclusive way to ascertain condition-based liability save where the lease expressly disapplies it.

4. Business common sense and the end-of-term consolidation.
   Even if there were ambiguity, commercial sense strongly favours the tenant’s reading. At lease end, the parties confront the practical need for a “one-time, one-number” solution. A consolidation of all condition-related breaches into a single certified sum reduces disputes, aligns with the unavailability of specific implement, and provides priceable certainty ex ante. Importantly, the clause still respects the boundaries of the bargain by leaving non-condition liabilities (e.g., a separate costs indemnity) in place.

Two further points arise from the reasoning and the facts presented:

• Effect of disapplying Clause 16. Although the parties disapplied expert determination under Clause 16, paragraph 12 still contemplates certification “by the Landlord’s Surveyors acting reasonably.” The court noted that a Clause 16 decision is not a precondition to liability. In practice, disputes may focus on whether the landlord’s certification is “acting reasonably,” a justiciable question if raised. The judgment leaves the procedural mechanics to be sorted at the By Order stage.
• Payment timeline and full satisfaction proviso. Paragraph 12 states that if the tenant pays the certified sum “within Fourteen days of demand” the landlord shall accept it “in full satisfaction” of the tenant’s liability “quoad the work.” The defender argued that if payment were not made within the stipulated time, “the sum due … would have to be quantified some other way.” The court did not finally pronounce on the consequences of late payment, but the logic of the clause suggests that while timeliness affects the landlord’s acceptance “in full satisfaction,” the exclusivity of the remedy for condition-based breaches remains directed to payment of the certified cost. The precise remedies for delay (interest, enforcement, or proof on quantum) are left open on the pleadings.

What this means for each head of claim advanced

Although Lord Lake did not dispose of the claims, the construction he adopted carries clear implications:

• First conclusion (£9.143m): If framed as damages, it is irrelevant; if framed as implement of the paragraph 12 payment obligation (as the pursuer indicated), it may be relevant and justiciable based on certification and reasonableness.
• Consequential losses due to unlettability (rent, insurance, rates, service charge): To the extent these are pleaded as damages flowing from the premises not being in the requisite condition at lease end, they are condition-based and thus fall within the exclusive remedy regime. On the court’s construction, these would be displaced by the certified cost mechanism and are unlikely to be recoverable in addition to the certified sum.
• Legal fees under Clause 32: This is a non-condition obligation (an indemnity for the costs of enforcing the lease). As such, it sits outside “quoad the work” and remains in principle recoverable if the clause is triggered on the facts and properly pled.

The court has scheduled a By Order hearing to align the pleadings with these rulings and to determine the practical route forward.

Impact and Drafting Lessons

This decision is significant for Scottish commercial property practice and beyond. Its main impacts include:

• Exclusive remedy for condition-based breaches: Where a lease provides that a certified sum is the landlord’s “only remedy” for restoring condition, courts will treat that mechanism as an agreed, aggregate monetary remedy. Landlords cannot pursue parallel damages claims for breach of the individual repairing and maintenance obligations that culminate in the end-of-term condition.
• Consequential loss claims curtailed: Claims for rent loss, rates, insurance and service charge during a period of unlettability attributable to dilapidations will generally be displaced by an “only remedy quoad the work” clause. If a landlord wants to preserve recovery of such consequential losses, the lease must say so expressly and unambiguously.
• Non-condition liabilities preserved: Clauses that do not concern the state or condition of the premises—such as separate indemnities, costs clauses, or monetary obligations unrelated to repair—remain enforceable. Careful classification is essential.
• Redevelopment carve-out has real bite: A Clause 17-style carve-out will be respected. Landlords cannot circumvent it by suing on underlying repairing obligations where the certification route is excluded.
• Certification mechanics matter: If expert determination is disapplied or unavailable, the landlord’s surveyor’s certificate must still be “acting reasonably.” Leases should clarify whether certificates are conclusive, what standard applies, and how disputes about reasonableness are to be resolved.
• Pleading strategy: Claims to enforce a certified payment obligation should be pled as implement of a primary contractual obligation, not as damages. Separate heads of claim must be scrutinised for whether they are condition-based (and thus displaced) or truly independent.
• Timing and satisfaction: If the clause ties full satisfaction to payment within a specific period, drafters should specify the consequences of late payment (interest, acceleration, or reversion to damages), to avoid disputes.

Complex Concepts Simplified

• Dilapidations: The tenant’s failure to keep premises in the condition required by the lease. At lease end, this often translates into a claim for the reasonable cost of remedial works.
• Only remedy (exclusive remedy) clause: A contractual provision stipulating that, for a defined breach or set of breaches, the non-breaching party has a single specified remedy, here a certified sum. It channelises recovery and bars alternative damages claims within its scope.
• Quoad: Latin, “with regard to” or “as to.” The clause here limits the exclusivity to liabilities “quoad the work,” i.e., as to the work required to restore condition.
• Implement vs damages: “Implement” enforces performance of a contractual obligation (for example, to pay a sum due under a certification clause). Damages compensate for breach. The court indicated that a certified payment claim should be pursued as implement.
• Specific implement after lease expiry: Courts generally will not order a tenant to carry out works after a lease ends (PIK Facilities). Hence, leases often convert performance obligations into monetary obligations via certification at expiry.
• Certification (acting reasonably): A landlord’s surveyor may certify the cost, but must act reasonably. If the expert determination pathway is disapplied, reasonableness may be tested in court.
• Redevelopment carve-out: A provision that suspends or disapplies the dilapidations recovery mechanism if the landlord intends to redevelop, reflecting the reality that demolition or wholesale refurbishment obviates certain remedial costs.
• Void and redd: Scots usage meaning cleared out, stripped, and handed over—typical end-of-lease delivery condition.

Conclusion

HFD Glasgow 3 Ltd v Student Loans Company Ltd establishes a clear rule of construction for Scottish leases containing an “only remedy” certification clause at expiry. Where, as here, the clause makes a certified sum the landlord’s only remedy “quoad the work,” the court will treat it as an exclusive, aggregate monetary remedy for all breaches relating to the condition of the premises. Landlords cannot, in addition, pursue damages for the same condition-based breaches (including consequential losses such as rent, rates, insurance, and service charge attributable to unlettability) unless the lease expressly preserves those claims.

At the same time, the exclusivity is bounded: it does not extinguish non-condition obligations such as a separate legal costs indemnity. The redevelopment carve-out reinforces the exclusivity by preventing workarounds in redevelopment scenarios. Procedurally, certified payment claims should be pled as implement; challenges will likely centre on the reasonableness of the certification where expert determination is unavailable.

The judgment thus advances certainty in dilapidations disputes by endorsing the commercial logic of a “one-number” end-of-term solution, while preserving the parties’ bargain outside the condition-based sphere. For drafters and litigators alike, the message is precise: say exactly what is to be included within the exclusive remedy, what is to be left out, and how disputes about certification are to be resolved.